FIRST TIME:

How To Buy The Most Home For Your Money

You’re neither rich nor poor, and you’re ready to buy your first home. You look around. All those homes on the market! All seemingly priced out of reach!

For starters:

Cheer up. You’re not alone. With some solid real estate counseling and some help from lenders and/or sellers and others, you can not only get your toe in the door, but you can own a home too. It just takes some creativity, a few inside tips and a bit of homework.

  • Examine your goals How ironclad are your dreams? Can your ideal of a formal dining room or a hot tub on a redwood deck be postponed? Must you have a two-car garage? Lowering your expectations and starting out modestly (in decent housing that meets your needs and budget) can lead to owning those dreams -- in time.
  • Start saving Get your priorities straight. Without taking all the fun out of life, what's more important to you, weekends on the road and dinners out or stashing away at least part of your down payment? (Lenders want to see that some of the money you invest is your own.)
  • Keep your credit record clean When you go mortgage shopping, lenders will be looking over your payment records. Don't let a late-payment habit rise to haunt you. (Reformed late-payers can request creditors to erase the blots on their records -- for a small fee.)
  • Look for financial assistance Your parents and other relatives may be able and willing to give you gifts that will get you over the down payment hurdle. (Loans from relatives will be counted as debts and will lower the amount of mortgage payments your lender will allow you to carry.)
  • Get some co-signers Parents, relatives (and unrelated investors) can either co-sign a loan or share the ownership of your home. With shared ownership, you'll be the resident but your co-investor may share specified expenses (plus tax advantages and equity accrual), and will share in your profit on sale.
  • Shop for mortgage loans Qualifying for a mortgage can be managed in several ways to fit your down payment and monthly-payment abilities. FHA and VA loans come with low down payment requirements, and lenders offer ARMs (adjustable-rate mortgages) at initially low interest rates. (Look for an ARM that can be converted to a fixed rate should rates drop.)
  • Consider creative financing Also, new-home builders and other sellers may offer buy-downs that lower your interest rate in the first few years of a mortgage, thereby making a home more affordable. Balloon loans (if they have at least a 7-year term) can often bridge gaps and give you time to accumulate equity and/or cash to pay them off. Home sellers can sometimes help you financially -- with a lease-purchase arrangement or a take-back loan. Lenders and sellers are constantly creating new ways to help buyers buy homes. We can help you check them out.
  • Look at starter homes Once freed of the vision of "instant dream home," you can look for housing that will start you on the equity-building path to realizing your dream. Condominiums and townhouses are often much less expensive than detached houses and buying one now can serve well as a stepping stone.
  • Search for bargains If you're handy with tools, a fixer-upper home gives you the opportunity to buy inexpensively, fix up and, in a few years, trade up. And if you're adventurous, foreclosed properties in suitable neighborhoods can also be good values. If you don't mind a longer commute to work, outlying areas frequently offer homes at lower prices than those found close to town. Whatever route you choose toward buying your first home, be patient. It may take time to find the right combination of elements, but there is a home out there for you and a way to obtain it. We'll be most happy to help you create your path to its door.

Call or e-mail us for more information on buying your first home.

NEGOTIATE:

How To Buy Your First Home At The Price You Want

Found the first home of your dreams? Now the negotiations begin.


The agent you’re working with can guide you through the process of making a purchase offer. You’ll want to start by learning as much as you can about how much the property is worth.

Check the comparables:

Your agent has up-to-the-minute price data at hand to help you analyze any comparable properties; just ask. Although every home is unique, here’s some of what makes a home “comparable” to the one you’re considering purchasing:

  • same neighborhood;
  • same age and condition;
  • same size lot;
  • same home style--equivalent living space, number of rooms and baths;
  • similar terms of sale.

Follow sales price trends
Ask about recent pricing trends in the neighborhood. Specifically, what has been the average difference between listing price and sales price for recent sales of comparable homes? What is the ratio of assessed tax value to market value?

Offer what you think the house is worth
Some asking prices have built-in padding, but others are already priced to sell. You could lose a well-priced starter home with a low-ball bid. Remember, a lower mortgage interest rate will allow you to borrow more and pay a higher price for your first home without increasing your monthly payment.

Spell out the details
Consider getting a pre-purchase appraisal and home inspection. The appraisal will give an independent valuation of the property, and the inspection will help identify any potential problems you may have overlooked. Consider including a contingency making the contract subject to a satisfactory appraisal and inspection.

Evaluate contingencies
The contract can also be contingent upon an attorney’s review, previous home sale, and acceptable mortgage loan terms, etc. Contingencies are typically used to smooth acceptance of an offer without delaying the final decision. Too many contingencies, however, weaken your bargaining position.

Know what’s important to you
Prioritize the elements of the sale on paper (“must” and “want”) and decide where you have negotiating room — what you’ll give up or accept in exchange for a concession. Items frequently negotiated include adjustments for needed or requested repairs, what personal property stays and what goes with the seller, points and closing costs, and move-in date. Knowing exactly what you want and where you are willing to bargain is your most important negotiating tool.

Put everything in the first purchase offer
If the first offer is accepted it may be too late to add anything. Include a financial statement. Do all negotiating in writing with a deadline for a response, often 48 hours. You are free to cancel an offer until it is accepted by the seller. Require that your binder or deposit be held in an escrow account with the interest credited to you.

Be patient
Negotiating could take several days. Be patient; you won’t want to rush into one of the most important purchases you’ll ever make.

We can help
If you’d like help finding your first home, please call or e-mail us. We’ll help with your home search and will give you all the important information we can provide to help you make the right offer for the right home at the right price.

TIRE KICKING:

Secret Tests To Check A Property’s Condition

If you’re considering buying a home that’s more than a few years old, there may be some hidden problems you can discover before you make a purchase offer. Although putting a professional inspection contingency in the contract will help protect you from surprises, doing your own inspection before making an offer could save you considerable time and money.

How can you tell if a property is worth buying? Here’s how to look at the big picture — for structural concerns, major repairs that are needed, appliances that have to be replaced.

Crawl The Walls:

Start going to the right when you enter the home, and keep on following to the right. You will check each wall that way. Do the same on every floor. Look for settlement cracks, separating joints, defective plaster or other signs of stress or damage. Check wallpapered areas for crinkling or gathering, which may mean walls are settling or shifting.

Look For Leaks
Loose or wrinkled wallpaper could indicate a water leak somewhere. Look for water stains on the ceiling and walls. You may have to look closely — bring a flashlight — in case they have been painted over or repaired.

Spend time in the bathrooms and in every area with pipes, checking for leaks and drips. Also, run the shower and basin, then flush the toilet to check water pressure. Look for cracked or loose tiles and missing grout or mildew stains on the walls or floor, which could indicate a behind-the-wall leak.

Plug Into The Electrical System
Check every electric socket or outlet. Use a plug-in night light and turn every switch on and off. Look for extension cords and multiple plugs in sockets, which could mean insufficient or poorly placed sockets. Also check every appliance to be sure it works well.

Focus On Condition
Open and close every door and window. Look and listen for squeaking, sticking, or a tendency to close on their own. Check for evidence of shifting or settling around the front stoop, chimney and walks, and places where the driveway and the fence meet the house. Also check the deck for sturdiness and look for rotted wood. Go into the garage and check the walls, floors and doors — inside and out.

Pay Attention To Pests
Look for termites and ants. Especially look along the foundation, around doors and entry points of wiring and pipes. Check the grading of the yard to be sure water runs away from the house.

If everything looks good to you and you decide to purchase the home, be sure to require a home inspection by a professional inspector before settlement. You will want a professional who will crawl into the crawl space, climb onto the roof and poke around with a flashlight in the attic. Your professional should also carefully inspect the major systems — electrical, gas, plumbing and heating/air conditioning.

You can and should insist on a written report detailing what the problems are with the home, how important each one is. You may have to consult a contractor to estimate repair costs on any problems found.

GET REAL:

Why Pay The Mortgage On Someone Else’s House?

The only one who benefits from a rent check is the landlord. Renters never see that money again, while homeowners usually profit when they sell. In addition, renters can’t use any of their rent payment as a tax deduction, like homeowners can. If you or someone you know is renting, it’s time to put that rent check to better use!

The mortgage-interest deduction is probably the best financial argument for buying your first place rather than renting. Consider this example:

If you can afford a mortgage payment of $1,000 (principal and interest only), you can buy a house for $206,980 if you put 10% down on a 30-year mortgage at 5% interest. If your payments started in January, you would pay $9,252 in interest for the first year in the home. That entire amount is deductible on your federal income tax return! Assuming you are in the 25% tax bracket, you would save $2,313 in taxes, or $193 per month. So your $1,000 payment is really only $807 when you factor in the homeowner’s tax advantage.

Can A Renter Really Afford To Buy?

The real question is whether renters can afford not to buy. The tax savings alone make the purchase of a home a wise financial decision. But let’s go a step further.

Using the same example, a 10% down payment would create an immediate equity of $20,698. Assuming the $206,980 house grows in value by just 3% a year, in five years it would be worth $239,947. The original loan amount would then be down to $171,060, yielding an equity of $68,807. In addition, remember your annual tax savings – after five years equal to $11,195. The total value of your equity and tax savings would be $80,002 after five years.

Pick A Loan
To take advantage of the financial benefits of homeownership, first-time home buyers must find out how much buying power they have. We can help. Call us for information about the whole range of mortgage options now available, including low- and no-down-payment loans, and programs that allow buyers to wrap home-improvement costs.

Plan Ahead
Although some lenders allow buyers to use up to 41% of monthly income to purchase a house, beware of becoming “house rich and cash poor.” Be sure to budget for first homeownership costs beyond the mortgage, including expenses for:

  • moving
  • decorating and furnishing
  • homeowners insurance
  • property taxes
  • homeowners association or condo fees (if any)
  • utilities -- power, water, sewer, cable, trash pick-up, internet
  • yard tools, supplies and general upkeep
  • home repairs, supplies, cleaning and upgrades.

Today, first homeownership is a wonderful dream-come-true for more people than ever before. Let us help turn those dreams into a first home to be proud of.

QUALIFY:

How Much Home Can You Really Afford?

Chances are, you’ve heard it before: Start your search for your first home with a clear idea of how much you can afford to spend. But how do you figure that out? Here are some guidelines:

Guidelines To Consider?

  1. Lenders often use the 28/36 method of qualifying buyers. The monthly payment cannot exceed 28% of your monthly income, and the total of all debt payments is limited to 36% of income. (Ratios used vary among lenders.)
  2. The lender percentages are usually maximums. Not everyone can afford the largest loan they qualify for. You need to look carefully at your expenses and lifestyle to see whether you can and are willing to pay the maximum month after month. Families with high medical expenses, auto repair bills or educational costs, for example, may decide to take out a smaller mortgage rather than borrow the most they can.
  3. Ask us or a lender what the monthly principal and interest payment would be for the loan amount you qualify for at the prevailing interest rate. Add in the monthly amounts for property taxes, homeowners insurance and homeowner association dues, if any. Estimate utility, credit-card and car payments. Add all these items to the monthly mortgage to get your total fixed expenses. Also figure in some routine maintenance costs. Subtract the total from your monthly income to get an idea of how much discretionary spending money you will have left at the end of the month in your new home.
  4. Don't put all your money into the new home. Plan to have several months' worth of income in a savings account for emergencies after you pay closing costs. Also, allow for new-home start-up costs such as new furniture and draperies, paint and wallpaper, new tools and equipment, etc.
  5. Look into the crystal ball. If you foresee a loss of income or a growth in family size, you may want to be more conservative in the amount you spend on your first home. On the other hand, if you expect your income to rise, enabling you to reach a comfort level after stretching your budget for a year or two, you may want to borrow the maximum.
  6. Consider moving up to a bigger home in steps, rather than all at once. After considering all the figures, you may decide to move into your first home, now, even if it is not your dream home. In a few years, your dream home may be within a comfortable reach.

Buyer’s Planning Guide

The table below shows how much 28% is at various income levels.

Annual Income
Gross Monthly Income
Affordable Monthly Payment
$20,000
$1,667
$467
$25,000
$2,083
$583
$30,000
$2,500
$700
$35,000
$2,917
$817
$40,000
$3,333
$933
$45,000
$3,750
$1,050
$50,000
$4,167
$1,167
$55,000
$4,583
$1,283
$60,000
$5,000
$1,400
$65,000
$5,417
$1,517
$70,000
$5,833
$1,633
$75,000
$6,250
$1,750
$80,000
$6,667
$1,867
$100,000*
$8,333
$2,333
*For incomes over $100,000, add together the two appropriate lines.

We’re experts at putting people together with homes they love and can afford. Call or e-mail us today to see how you can get started.